2018 (12) TMI 275 - AT - Income Tax

Tribunal rules in favor of assessee on disallowance under Income Tax Act.

The Tribunal allowed the appeal in favor of the assessee, holding that no disallowance under Section 14A of the Income Tax Act was warranted as there was ... Addition on account of disallowance u/s 14A - Held that:- Since there was no exempt income earned by the assessee, therefore, the disallowance was not warranted at all. We also noted that this contention of the assessee is correct as the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT [2015 (9) TMI 238 - DELHI HIGH COURT] and Hon'ble Allahabad High Court in the case of CIT vs. Shivam Motors (P.) Ltd. [2014 (5) TMI 592 - ALLAHABAD HIGH COURT] has made similar findings and has held that in the absence of tax free income earned by the assessee, disallowance u/s 14A cannot be made. Addition u/s 36(1)(va) for delay in deposit of employees contribution to PF /ESIC - Held that:- We find that before the due date of filing of income tax return, the assessee had duly deposited the dues and in the case of Sagun Foundry Private Limited vs. CIT [2016 (12) TMI 1479 - ALLAHABAD HIGH COURT] has held that where such deposits are made before the due date of filing of income tax return, no disallowance u/s 36(1)(va) are required to be made. - Decided in favour of assessee. Issues Involved1. Disallowance under Section 14A of the Income Tax Act.2. Disallowance under Section 36(1)(va) of the Income Tax Act for delay in deposit of employees' contribution to PF/ESIC.Detailed Analysis1. Disallowance under Section 14A of the Income Tax ActArguments by the Assessee:- The assessee argued that there was no exempt income earned during the assessment year, as evidenced by the computation of income and audited financial statements. Therefore, no disallowance under Section 14A should be made.- The assessee relied on judicial precedents from the Hon'ble Delhi High Court in the case of *Cheminvest Ltd. vs. CIT* and the Hon'ble Allahabad High Court in the case of *CIT vs. Shivam Motors (P.) Ltd.*, which held that in the absence of tax-free income, disallowance under Section 14A is not warranted.- The assessee also contended that the Assessing Officer failed to record satisfaction regarding the disallowance before applying Rule 8D, which is contrary to the judgment of the Hon'ble Supreme Court in the case of *Maxopp Investment Ltd. vs. CIT*.Tribunal's Findings:- The Tribunal noted that the assessee did not earn any exempt income during the relevant assessment year, as confirmed by the financial statements.- Citing judicial precedents, the Tribunal held that in the absence of exempt income, no disallowance under Section 14A is required.- The Tribunal allowed grounds No. 1 to 4 in favor of the assessee.2. Disallowance under Section 36(1)(va) for Delay in Deposit of Employees' Contribution to PF/ESICArguments by the Assessee:- The assessee contended that the employees' contributions to PF and ESIC were deposited before the due date of filing the income tax return.- The assessee relied on the judgment of the Hon'ble Allahabad High Court in the case of *Sagun Foundry Private Limited vs. CIT*, which held that no disallowance under Section 36(1)(va) is warranted if the contributions are deposited before the due date of filing the income tax return.Tribunal's Findings:- The Tribunal found that the assessee had deposited the employees' contributions before the due date of filing the income tax return.- The Tribunal referred to various judicial precedents, including the judgments of the Hon'ble Allahabad High Court, which supported the assessee's contention.- The Tribunal allowed ground No. 5 in favor of the assessee.Conclusion:- The appeal of the assessee was allowed in its entirety.- The Tribunal concluded that no disallowance under Section 14A was warranted due to the absence of exempt income.- The Tribunal also concluded that no disallowance under Section 36(1)(va) was warranted as the employees' contributions were deposited before the due date of filing the income tax return.Order Pronouncement:- The order was pronounced in the open court on 16/11/2018.This comprehensive analysis ensures that all relevant legal terminology and significant phrases from the original judgment are preserved while providing a detailed understanding of each issue involved.